Reading Michael Lewis’s new book, TheBig Short would have been fun if it were fictitious. It’s fast moving, well written, and full of colorful characters who play out bizarre roles in a tale that should have had a kind of philosophical Orwellian foreboding. Instead, it’s about how and why the market crashed in 2008. If you want to know how we got into this awful economic quagmire, the story told in The Big Short is as good an explanation as I’ve read.
The explanation, in short: left to their own devices, there are lots of selfish, greedy people out there who lie, cheat, and steal. They have no trouble taking away all the money, along with the humble dreams, of millions of innocent, trusting, vulnerable people.
In this tale, both the heroes and villains are villains. The hero-villains are smart gamers; the villain-villains are clueless corporate stooges. They’re all greedy, duplicitous and amoral. Because money is the only game, nothing else matters even when they know it should. One of the characters, Michael Burry, sums up what should have been a moral dilemma quite nicely:
“I have a job to do. Make money for my clients. Period. But boy it gets morbid when you start making investments that work out extra great if a tragedy occurs.”
Then he did just that, and made very large and explicit bets against subprime mortgage bonds. He knew enough to bet everything he had on the calamity of others and he won the bet.
So, on one side were all the financial houses that originated the subprime mortgages, the firms that packaged and sold the subprime mortgages, the fund managers who invested in the subprime mortgage-backed bonds and the agencies that rated the subprime mortgage bonds. On the other side were the guys who figured out not only the likelihood of failure, but how to increase the likelihood of failure. It was a gargantuan stakes financial shootout in a wild west cowboy culture with no rules and no sheriff.
Again and again, I found myself reading passages twice and thinking, “This can’t be legal. Why is this allowed?”
Apparently, it’s not. The sheriff finally showed up–even if a couple of years late–and has been investigating the crime scene. Finally, the Securities and Exchange Commission is charging Goldman Sachs with fraud.I’ve read numerous articles about the indictment just trying to find some hope that the indictments will stick. Late yesterday, the NYT reported that there is strong evidence that the top executives of Goldman were personally overseeing the mortgage department and won’t easily be able to blame their racket on lower level staff. Good. I hope they nail ‘em.
As The Big Short makes clear, this kind of internal dealing wasn’t limited to just one company. There was double-dealing and lying going on everywhere. It’s how they roll.
These guys were essentially both mixing the toxic Kool-Aid and then making bets against the health of those who drank it. That’s dark and evil behavior, and I do hope there are consequences. There would be few tears if those bankers would come to learn the real meaning of the suffering caused by their “Bet against the American Dream,” (from the title of a song commissioned by ThisAmerican Life.)
Our tears are for the pawns in their game.
We cry for the millions and millions of lives have been disrupted or turned on end so that a few bankers could show all aces and cash in big.
We cry for the people who lost their live savings and their homes; for the formally middle class, now learning to live in poverty.
We cry for the millions of good people now out of work and running out of hope.
Our tears are for those whose innocent pursuit of the American Dream turned into their worst nightmare.
Our tears are for many hard working small business owners whose good enterprises are now shuttered.
I cry for the difficulties in my industry and my own business; for all the good craftsmen and builders whose noble profession was sent to ruins by an evil racket; for my associates whose jobs are much less secure and who rightfully worry about our ability to weather this calamity.
I don’t like vengeance, but I do wish those gaming bankers would come to know what is like to not be able to pay basic bills, or where their family will sleep tonight, or where the next meal will come from. I want them to sit down with some of the families whose lives they have ruined and hear first hand about the emotional, physical and economic damage they’ve done.
In that setting, I’d like them to explain themselves.